India and Taiwan are in talks on chip shortage resolving deal

As per reports, the Indian and Taiwanese government officials met recently to negotiate a proposal that would bring a chip facility worth $7.5 billion to India.

As the chip shortage issue is expected to stretch into 2023, India and Taiwan are in talks on a deal that may bring chip production to the region, as well as tariff reductions on components used to make semiconductors by the end of the year. It is believed that this move might rekindle tensions with China.

In 2018, India and Taiwan inked a bilateral investment agreement to increase revenue and strengthen economic connections between the two countries. The trade between the two countries totalled $5.7 billion in the year 2020.

According to the latest report by Bloomberg, people familiar with the discussion stated that Indian and Taiwanese government officials met recently to negotiate a proposal that would bring a chip facility worth $7.5 billion to India, which would lead to the supply of everything, including 5G devices and electric cars.

As per the report, the sources said that India is currently looking at prospective places with enough land, water, and manpower. It has been stated that the authorities will fund 50 per cent of construction expenditures starting in 2023, as well as providing tax benefits and other incentives.

The Taipei officials hoped to move quickly on a bilateral investment pact that would involve tariff reductions on dozens of semiconductor-related products, as a prelude to a broader trade agreement that is also being considered, claimed sources. However, the details about the discussions between both countries haven't yet been revealed officially.

The alleged discussion among the Indian and Taiwanese officials has its own significance in the context of China, as to counter an increasingly assertive country, democracies throughout the world are strengthening their economic and military ties.

According to a Bloomberg report, a senior Indian government official earlier said that Taiwan, which Beijing claims to be its own territory, has sought trade talks with India for several years, but the central government has been hesitant to move forward because it would involve a messy fight with China once any pact is registered at the World Trade Organization (WTO).

However, as the United States President Joe Biden aims to shore up chip supplies, establish supply networks across democracies and increase military capabilities in the region, the discussions have warmed up in recent weeks. Recently the American President has also hosted Indian Prime Minister Narendra Modi, as well as the leaders of Australia and Japan, to counter China's influence, as part of the Quad Summit 2021.

However, since a protracted border confrontation in 2020, India has taken a more assertive attitude against China. According to reports, India and Taiwan are establishing the framework for a comprehensive trade agreement spanning commodities, services and investments. Meanwhile, officials in Taipei are attempting to alter the investment agreement in order to demonstrate early progress.

As it aims to become more self-reliant on chips, India has pushed to attract high-tech investments, while Taiwan seeks to enhance its diplomatic footprint around the world as it pushes back against Chinese pressure.

The discussion is happening at a time when experts highlighted the fact that several manufacturers of domestic appliances and consumer electronics who use chips as inputs are currently experiencing capacity constraints and expect upcoming product launches to be delayed.

The Consumer Electronics and Appliances Manufacturers Association (CEAMA) President Kamal Nandi said: "The industry might run short of controllers owing to shortages of semiconductors and other electronic components. Keeping in mind the surge in demand during festive, we have taken appropriate measures to mitigate the near-term risks."

The concerning chip shortages have pushed back the release of Indian business tycoon Mukesh Ambani's Reliance Industries Ltd.'s smartphone, which was co-engineered with Google. The issue also impacted automobile production, and it is predicted that in India the supply shortage would further impact passenger vehicles sale volumes in September.

India now imports all semiconductors to meet demand, which is expected to reach $100 billion by 2025, up from $24 billion now.

As per the Bloomberg sources, Taiwan has welcomed collaboration between the two countries on semiconductors, but it is still reviewing the idea because of a lack of ecosystem for building up a chip production unit in India.

It was also reported that the Taiwanese officials had expressed concerns about water, as well as electrical availability, and has indicated that it could be more practical for India to start developing a chip design business before establishing production plants.